Agriculture as an asset class (Re)-shaping the South African farming sector

Agriculture as an asset class

(Re)-shaping the South African farming

sector

Antoine Ducastel & Ward Anseeuw

Paper for the international symposium “Finance at work”, 9th _{and 10}th _{October 2014}

South African intermediaries as farmland brokers

• Market intermediaries’ roles (Bessy & Chauvin, 2013):

– Mediating the supply and demand – Translating capital and ressources

• An asset as a value recognized by financial markets:

– Financial beliefs (i.e. outperformed the average profit)

– Financial devices (i.e. calculation devices) and benchmarks

• How such intermediaries (re)-shape the South African

farms as an investment opportunity for institutional

investors, i.e. as an asset class?

Fund A’s Structure: a private equity cash flow

• Investor stringent supervision; operational management on farm; cash crop and cattle

Fund B’s structure: a real estate fund cash flow

• Protected Cell Company; R500 million; permanent crops; leasing of farms (8% of farm value)

Diversity of channels toward South African farmlands

structured around the relations investor(s)/manager:

o Long term investors and weight of the source of capital (Aglietta & Rigot, 2009)

o Background of the fund manager and forms of its “indigenous capital”

Beyond this diversity, SA intermediaries engaged in an

“assetisation” process

• 3 steps toward a profitable, tradable, predictable and liquid asset

1

. Unlocking the financial value: leverage

instruments on SA farms

• Commodity future exchange (SAFEX)

• Potfolio approach: geographical diversification

• « Off-shorisation »

• Corporate farming and management from a distance • Bundling and unbundling strategies:

• A farm as a bundle of independant assets: property deeds, water rights, a “biological asset” and a flow of commodities

2

. Setting up SA farms’ standards and benchmarks

• The

corporate finance instruments (i.e.

Discounted Cash Flow model)

– A set of « calculation devices » (Callon et al., 2007)

– A common metric for financial markets: Decision

making support; to compare and evaluate the

assets’ profitability and complementarity

• Highliting the value creation

• Framing practices and strategies

• A competition challenge

3.

Producing a « disembedded » farm

• Occupiers:

“A person residing on land which belongs to another person, and who has, or on 4 February 1997 or thereafter, had consent or another right in law to do so”, Extension of Security of Tenure Act, 1997

• Toward financial enclaves: the « assetisation »

process as an extraction from its political and

social environment

• The « cross-border regulation » attempts

Toward a SA farmland market?

• Ordering a sub-financial industry: mobilizing on

recognized instruments, expertise, procedures

and staff; retroaction from resistances and

failures

• Institutionalization of a market: “governance

structures”, “conception of control”, “rules of

exchange” (Fligstein, 1996)

• From “Land-commodity fiction” (Polanyi, 1983)

to “land-asset fiction”?

Changing the form and conception of SA

agricultural sector

• Corporate agriculture vs. family agriculture:

from independant farmer to farm manager

• Desectorisalition of SA agriculture

• Funding agricultural development and

Thank you

Antoine Ducastel

antoine.ducastel@cirad.fr